Recent Fiscal Policy in Australia



Recent Fiscal Policy in Australia

Introduction

This assignment is based on the recent fiscal policy in Australia. The Australian economy has been one of the most resilient in the OECD during the economic and financial crisis. This impressive result lead to strong growth which shows that the economy Australia was well prepared to cope with a major shock. The sound policies implemented for several years have left enough leeway for monetary and fiscal policies. In Western Australia, the corporate income tax is the main source of government revenue. Australia has long demonstrated high rates of economic growth, which has allowed it to gain a foothold on the global economy (Tagkalakis, 2011). Average annual GDP growth over the last seven years has exceeded 4%. Australia has overtaken both Germany and the United Kingdom, and the United States. Even in the midst of the economic crisis in Asia, the growth rate of the Australian economy was higher than those of the leading industrialized countries. It was two times higher than the average for the Organization for Economic Cooperation and Development (OECD).

Successful macroeconomic position of Australia in the Asian crisis was largely provided by a combination of expansionary monetary policy adopted by the government and fiscal restraint. Australia fiscal policies between 2006 and 2013 reveal that the effectiveness of fiscal policy should be improved. In addition, Australia has a relatively low tax burden; the tax system has many samples characterized by a modest performance and high administrative costs. Some taxes can also reduce incentives. Australia imposes a number of state taxes, municipal and federal that applies to commercial activities, including the activities of the mining sector.

The current mix of monetary and fiscal policy is appropriate to support the recovery and Australia is well equipped to cope with risks. Monetary easing in a context of low inflation supports the activity, while the surplus is quickly restored to recover fiscal leeway. If weaker activity more pronounced than expected, monetary policy should be the first line of defense (Gruen, 2005).

Effectiveness of Australian Fiscal Policies and Global Financial Crises

The fiscal and monetary policy plays a prominent role in any economy. Public spending is a part of fiscal policy. Government spends money on issues that are not catered by the private sector. Public sector spending includes defense, infrastructure such as roads and bridges, health services, unemployment benefits and education. However, in order to achieve promote growth or minimize unemployment, government spending can be inflationary. The inflationary effect maximizes when the government borrow money from financial markets for spending. This create debt burden on the economy and future generation suffers. Crowding out can also occur as a result of government spending. De-industrialization occurred in UK economy from 1960s to 1970s. As the government started borrowing excessively, scarcity of resources for private sector started. A limitation of government spending is the Stability and Growth Pact which limits the borrowing to less than 3%. Nevertheless, a number of EU member countries disregard the Pact and started to spend more ...